Should Data Centers Be Regulated as Utilities? Industry Experts Weigh In

Last week the New York Times suggested that the data center industry has become a “wildcat power utility” by reselling power to customers at a profit and ripe for regulation. So we reached out to experts who were familiar with both data centers and utilities and asked: Is the data center industry a candidate for regulation as a utility?

Their answer: Although power is a key component of their offerings, data centers differ from utilities in very significant ways. Another key point is that data center clients are typically sophisticated companies that are paying premium prices, and unlikely candidates for exploitation by service providers – a key historical concern of utility regulation.

But these experts also noted that some industry practices open the door to greater scrutiny, and data center operators need to be more transparent about their practices to address concerns.

Times: Power A Central Component of Leases

In its story last week, The New York Times took a critical look at power provisioning in data centers. “Electrical capacity is often the central element of lease agreements, and space is secondary,” the Times wrote. “A result, an examination shows, is that the industry has evolved from a purveyor of space to an energy broker — making tremendous profits by reselling access to electrical power, and in some cases raising questions of whether the industry has become a kind of wildcat power utility.”

The paper added that “the capacity pricing by data centers …. appears not to have registered with utility regulators.”

Regulating data centers as utilities “doesn’t seem plausible to me,” said Coy Stine, Director of Data Center Services at Bluestone Energy, which works with utilities on energy efficiency incentives. “Data centers provide the service of a highly conditioned and very reliable power source. Customers can’t get that by plugging their services into the utility power plug in the wall. Comparing a data center to a utility is similar to saying a car manufacturer is a provider of sheet metal. The automobile has metal as a component, but there’s much more to it. The data center provider is playinhg the same role.”

“I think data centers are a whole different animal,” said Jon Koomey, a research fellow at Stanford University who has done several landmark studies on data center energy use. “It’s not only the cost of a kilowatt of power. They’re charging for equipment and infrastructure like backup generators. These data centers aren’t like individual households. The key difference is that these (customers) are people who know what they’re doing.”

Sophisticated Customers

Both Koomey and Stine said they have heard of concerns being raised about the role of data centers in energy purchasing. But they say that equating data center providers to residential or office landlords is a flawed comparison, as they offer different services and have different types of customers.

“I think it stems from the old model of tenants being exploited by their landlords,” said Koomey. “The people that are renting data center space are typically pretty sophisticated folks who are paying a lot of money for these services. This idea that they’re taking advantage of these clients doesn’t make sense.”

“Data center customers have teams of people to negotiate their SLAs (service level agreements) very carefully,” said Stine. “The cost for the data center operator to buy switchgear and UPS gear and generators is factored into the cost to the customer. I think the customers understand this, but the general public does not. Most of the audience of the New York Times doesn’t understand what happens in the data center.”

About the Author

Rich Miller is the founder and editor at large of Data Center Knowledge, and has been reporting on the data center sector since 2000. He has tracked the growing impact of high-density computing on the power and cooling of data centers, and the resulting push for improved energy efficiency in these facilities.

Related Stories

The New York Times has resumed its critique of the data center business, suggesting that the industry has become a "wildcat power utility" by reselling power to customers at a profit. The Times report examines the use of REIT structures by data center operators. Read More

What's ahead in the relationship between the data center industry and utilities? Mark Bramfitt shares his insights on how the two industries can work together on improved efficiency and renewable energy. Read More

What's ahead for Mark Bramfitt, who has been the electric utility industry’s most visible ambassador to the data center sector? Bramfitt, who is departing PG&E, discusses his plans and utilities' role in the data center sector in an interview with Data Center Dialog. Read More

Add Your Comments

2 Comments

AlexMay 22, 2013 at 8:26 am

Whoever did this article at the NYT needs to brush up on how a data center operates. It is nothing more than a high-tech piece of real estate. It does not sell power to its customers, more often it sells power *capacity* The two are not interchangeable.

I think the idea of regulating datacenters is irrational due to the simple fact that competition is generally around the corner. If you are unhappy with the price or level of service, you can move. In a major center, there is often another datacenter within a short distance. Price is important, and datacenter operators know that a client can move when they are discontent. The notion that datacenter clients are sophisticated companies who will pay premium prices is strange. Clients come from all sectors of the economy and in different sizes and as a result, shop around for different reasons… some price, others location, quality, service level agreements, support etc.
With a utility, if you’re discontent with the price or level of service, it is far more difficult to remedy. Sure, you can move, but with vast exclusive territories, it generally means picking up and moving to another state. Because power is definitely the big cost item at a datacenter, operators are looking at ways to supplement with competitive renewable sources, such as PV. While PV doesn’t make a big impact with respect to overall percentage, it’s a start, and certainly something that will advance over the coming years.